Working Paper: NBER ID: w28333
Authors: Claudio Lucarelli; Sean Nicholson; Nicholas Tilipman
Abstract: Many countries use uniform cost-effectiveness criteria to determine whether to adopt a new medical technology for the entire population. This approach assumes homogeneous preferences for expected health benefits and side effects. We examine whether new prescription drugs generate welfare gains when accounting for heterogeneous preferences by constructing quality- adjusted price indices for colorectal cancer drug treatments. We find that while the efficacy gains from newer drugs do not justify high prices for the population as a whole, innovation improves the welfare of sicker, late-stage cancer patients. A uniform evaluation criterion would not permit these innovations despite welfare gains to a subpopulation.
Keywords: No keywords provided
JEL Codes: I11; I31; L00
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Pharmaceutical innovation (O35) | Welfare improvement for late-stage cancer patients (I38) |
| New colorectal cancer drugs (L65) | Price decrease for late-stage cancer patients (G52) |
| New colorectal cancer drugs (L65) | Price increase for early-stage cancer patients (I11) |
| Innovation in healthcare (O35) | Suboptimal health technology adoption decisions (I12) |
| Ignoring heterogeneity in patient preferences (D11) | Welfare losses for late-stage cancer patients (I12) |